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The essential perspective on global energyFri, 31 Jul 2015 15:27:35 +0000en-UShourly1Sussing out the ceilings over Russian gas priceshttp://blogs.platts.com/2015/07/31/sussing-out-ceilings-russian-gas-prices/
http://blogs.platts.com/2015/07/31/sussing-out-ceilings-russian-gas-prices/#commentsFri, 31 Jul 2015 15:07:21 +0000http://blogs.platts.com/?p=21061In this month’s selection from Platts Energy Economist, Managing Editor Ross McCracken explains what is currently contributing to Russia’s slipping grip on the European natural gas markets and questions whether Russian gas will be competitive in the future.

Almost a decade on from the first Ukraine-Russia natural gas crisis of January 2006, Europe faces another winter with the threat of disrupted supplies through Ukraine hanging over it. The region’s security of gas supply has improved significantly, but it remains vulnerable, not least where dependence on Russian gas has grown as a result of lower import volumes from North Africa. The stubborn facts are that Europe has a structural gas deficit and the only new source of supply is LNG.

From Russia’s perspective, its markets have evolved into three distinct zones. First, captive markets. These are the former Soviet Union and to a large extent south Eastern Europe, but increasingly excluding the Baltic states and Ukraine. In this zone, Russia can dictate pricing terms, has a high degree of control over transmission capacity and a high level of demand security. Nonetheless, prospects for market growth are limited.

Second are hostile markets. In Eastern Europe, including the Baltic states and Ukraine, growing interconnectivity with Western Europe and the ability to import LNG threatens Russia’s market share. Increasingly, buyers in Eastern Europe have options to use alternative supply routes and different pricing mechanisms. This is an area of potential demand growth, but one in which Russia faces increasing competition and political hostility.

And third are competitive markets in Western Europe. Acrimonious European Union-Russian energy relations represent a serious threat to further Russian penetration of Western European gas markets, but this is counter-balanced by national self-interest and the confidence engendered by the construction of the NordStream pipeline that takes Russian gas directly to Germany. The hostility of Eastern European states means Russia is now more dependent on Western Europe than before the Ukraine crisis.

According to data from EU gas regulator ENTSOG, between 2010 and 2015, 42 Bcm of new interconnection capacity was added within Eastern Europe and between Central and Western Europe. There has also been significant investment in bi-directional flow; capacity labelled as bi-directional amounts to 146.6 Bcm, up 49.8 Bcm from 2010, with about another 71 Bcm having some reverse flow capability and/or virtual backhaul capacity. A lot of pipelines with virtual backhaul capacity have been upgraded to have physical reverse flow capability.

Click on image to view a larger version.

The extent of change is quite dramatic in some countries. In 2010, Poland had 1.1 Bcm/year gas import capacity from Germany. Now it has 7.6 Bcm/year of non-Russian or Ukrainian import capacity and in October expects to commission its first LNG terminal on the Baltic Coast. Lithuania’s first LNG terminal was commissioned in December. By 2020, Poland should have 22 Bcm/year of non-Russian or Ukrainian import capacity with new and expanded gas links to the Czech Republic, Slovakia, Lithuania and Ukraine.

The new infrastructure creates options that limit the price differentials between countries. These differentials are in effect a function of each country’s relative captivity with regard to Russian gas imports in terms of infrastructure, and the relative state of their political relations with Moscow.

But whether those options are fully exercised will ultimately be determined by price. There are three elements of competition: European hub prices; pipeline imports from outside the EU, where oil indexation is being eroded but remains a significant element; and LNG, where again oil indexation continues to play a significant role.

Platts data shows that there has been a remarkable convergence in gas prices in Northwest Europe over the past year and it is likely that both European hub prices and the price of LNG in the Atlantic basin will increasingly represent a ceiling for the price of Russian gas imports into Eastern Europe. As the LNG market is expected to remain soft, buyers should have the leverage to force contractual change on Gazprom.

Likely developments are the extension of hub pricing, shorter contracts and greater flexibility on volume. Ironically, Russia’s rerouting of its gas exports through NordStream creates a commercial rationale for the use of west to east and north to south gas supply infrastructure in Eastern Europe – the same infrastructure that is being built to reduce dependence on Russian gas imports.

The long-term nature of pipeline supply contracts, slow progress in gas market liberalization, and, in particular, the dominant position of incumbents means that change will be gradual, but conditions are ripe for the extension of gas-to-gas competition into Eastern Europe, even if much of the new flows are re-routed gas of Russian origin. Permanent change has and is taking pace that is more fundamental than the temporary effects of a soft market.

]]>http://blogs.platts.com/2015/07/31/sussing-out-ceilings-russian-gas-prices/feed/0Poll: Do you think the US will approve the Keystone XL pipeline?http://blogs.platts.com/2015/07/31/poll-us-approve-keystone-xl/
http://blogs.platts.com/2015/07/31/poll-us-approve-keystone-xl/#commentsFri, 31 Jul 2015 04:01:13 +0000http://blogs.platts.com/?p=21054With the end of the Obama administration in sight (or at least the 2016 presidential campaigns already making headlines), signs point toward a deadline on the Keystone XL decision.

In a press briefing Wednesday, Eric Schultz, a White House spokesman, said the Keystone XL issue would be resolved by the time President Barack Obama leaves office in January 2017. A review of the pipeline is ongoing at the State Department, and if approved the pipeline would bring 830,000 b/d from Alberta, Canada, to the US Gulf Coast region.

Segments of the pipeline in the US have already been built, but much of the pipeline has been caught in limbo for a long time now.

We want to know what you think: Will the US approve the pipeline? Or is the coming decision going to reject the project? We’re curious about what you think, and feel free to leave comments explaining your decision below.

]]>http://blogs.platts.com/2015/07/31/poll-us-approve-keystone-xl/feed/0Observers wait for Mexico to allay concerns over subsequent bidding roundshttp://blogs.platts.com/2015/07/30/mexico-concerns-bidding-rounds/
http://blogs.platts.com/2015/07/30/mexico-concerns-bidding-rounds/#commentsThu, 30 Jul 2015 04:01:21 +0000http://blogs.platts.com/?p=21039Mexico’s debut bidding event in Round One of its energy reform is now history, and resulted in what was widely agreed was a poor showing.

Now, the post-mortems have begun, both within industry and the Mexican government, which openly acknowledged it needs to do a better job of listening to industry’s concerns about contract terms that might have attracted more winners had the sticking points been addressed to begin with.

Of 14 exploratory blocks offered in shallow waters in the Bay of Campeche — the same area that produces a large chunk of Mexico’s current 2.257 million b/d of crude production — the July 15 auction produced winners on just two tracts. Both were captured by a consortium made up of Mexican startup Sierra Oil & Gas, US’ Talos Energy and UK’s Premier Oil. Six blocks received offers, but on four blocks the sole bid on each was below minimum amounts set by the government. The other two blocks received more than one bid.

In addition to bidders’ pre-event complaints about relatively small fields, other objections abounded.

For example, the four-year terms with two-year extensions may have been too short for some operators that wanted longer contract terms for more extensive exploration, a top official for energy consultants IHS said.

The operators may have wanted to perform “more extensive exploration, such as whether there might be complex pre-salt formations that could be exploited at deeper levels,” said Carlos Pascual, senior vice president of the large consultancy and former US Ambassador to Mexico, in testimony last week before the US government’s House Foreign Affairs Committee Subcommittee on the Western Hemisphere.

In addition, “government minimum bids may have been influenced by historic Pemex production costs, which may be lower than the costs estimated by potential investors,” Pascual said.

After the bidding, obviously chastened bidding officials pledged to do better for the upcoming second bidding phase, which will involve five blocks also in the Bay of Campeche but this time aimed at exploitation of the fields. That will take place on September 30, and it’s unknown if the round will be postponed to allow the government more time to make the changes.

Meanwhile, in a paper prepared for the Atlantic Council last week analyzing Mexico’s first bid round, David Goldwyn, chairman of the Council’s energy advisory group, and his associate Cory Gill, noted the country’s finance ministry set minimum profit shares of 25% on five of the 14 blocks and 40% on nine blocks — which for all but the two most competitive tracts appeared “too high relative to [their] limited resource potential.”

But the two most competitive blocks attracted offers much higher than the minimum bids, the analysts noted. In other cases, had the minimum been set as little as 5% lower, “the blocks would have been sold” and the government would have ended up with something rather than nothing in those cases, they added.

The lesson? Set a lower minimum and let the market determine the price, and let geologists lead on valuing the blocks, the analysts said. They also applauded the mechanics of the process which they said worked “beautifully” — since it was transparent, webcast over the Internet, and each bid was read aloud and prominently displayed for the cameras.

As to contract terms, however, risk and reward are still out of balance, the Atlantic Council analysts said. Mexico held bidding rounds for numerous blocks in the 2000s for fee-based service contracts that paid companies according to incremental production. Interest was low among international companies, and Mexican bidders or smaller companies mostly ended up as winners of those rounds.

The specter of that contract type apparently still hovers over the present production-sharing and license agreements, according to Goldwyn and Gill.

In addition, bidders were concerned about “holes” in the geologic data offered which need to be fixed, they said.

The analysts also suggested Mexico consider moving to license agreements — which they said are less complex to administer — in subsequent rounds rather than production-sharing agreements, which they called “poorly altered versions of the … old service contracts and do not reflect international standards.”

The consensus is that Mexico has made great progress, but needs additional tweaks to come up to international standards and terms satisfactory enough to attract Big Oil (and even Medium Oil) in sufficient numbers. And with deepwater bidding being planned, the tweaking needs to happen sooner rather than later.

“With some lessons learned from the first round, there is every reason for optimism that further success is achievable and likely,” Goldwyn and Gill said.

]]>http://blogs.platts.com/2015/07/30/mexico-concerns-bidding-rounds/feed/0The allure of steelhttp://blogs.platts.com/2015/07/29/allure-steel/
http://blogs.platts.com/2015/07/29/allure-steel/#commentsWed, 29 Jul 2015 04:01:46 +0000http://blogs.platts.com/?p=21042There’s something about steel. Before I joined Steel Business Briefing in 2008, I’d never really known what I wanted to do career-wise. I worked for some good companies, including competitors of Platts (which acquired SBB in 2011), but never really envisaged staying in the price reporting sector. Nothing against it, I was just young and finding my way, armed with humanities degrees that didn’t gear me up for much outside of education.

But there’s something about steel.

My colleagues Joe Innace and Henry Cooke have more than half a century covering it. Anyone who knows anything about attrition rates in the publishing/price-reporting agency sector knows that is a tremendously long time. That’s part of the reason it’s such a good place to be: the knowledge you can acquire by spending time with these guys, titans in our field, if you like.

This longevity is an extension of what happens in the industry itself. I’ve had the fortune of reporting on the UK steel market for some time now. I’ve moved on a little, but I can’t let go totally. People don’t leave it; they can’t. They retire and take consultancy roles. Or sell their businesses and still attend all the events to meet their old customers, competitors, drinking buddies. Through sickness and health, they remain.

Senior figures in Platts metals content group have come from the industry itself, selling sheet into the oversupplied UK market. You could say they’ve stepped away, but they didn’t leave completely. Because there is something about steel.

It’s a tightly knit fraternity. You write an article that angers one stockholder, everybody knows about it. Everybody knows everybody. The wrath is cumulative, and it can be tough to recover from. I’ve been there (several times).

Just recently I visited a plant in the UK. These visits are so informative. Spending time talking with a former HR executive at British Steel was illuminating, discussing negotiations with unions, decisions on which plants to close/keep. This rich tapestry of background really helps arrange the conceptual furniture, if you will.

Platts Steel Markets Daily is a leading source for scrap metal prices and iron ore news and prices. It is the only publication that publishes global metallurgical coal spot prices on a daily basis and contains two iron ore price benchmark assessments in one report: Platts IODEX and TSI 62% iron ore.

Wherever I’ve been – the UK, Europe or elsewhere – people are happy to spend time educating us and telling us about their businesses. People are proud of the industry. In the UK, it’s a shadow of its former self, a blip on the global radar production-wise, but the know-how of the people involved is staggering. And these ladies and gents do a proper job, maintaining rolling lines and furnaces in searing heat in heavy, hot safety clobber.

It’s an ever changing world and the industry is grappling with some massive issues – namely, the fiery breath of the Chinese dragon reaching markets the world over as the modern-day price setter looks to export surplus supply. When I joined SBB in 2008, European hot rolled prices were around Eur750-Eur755/metric ton, both on a domestic ex-works and CIF Antwerp basis. Today, the CIF Antwerp price is below Eur350/mt CIF, while domestic material transacts at a touch above Eur380/mt ex-works. Spot iron ore prices were around $160/dry mt towards the end of August 2008. Today it’s nearer $50/dmt, after reaching a nadir of about $44/dmt earlier this year – prices touched a high of $193/mt CFR in February 2011.

The dramatic transformation in iron ore has been something to behold. From annual pricing to quarterly to monthly and spot, it’s been a rapid change in the way the commodity trades. Ore derivatives are now touching about half the volume of seaborne trade. A far cry from oil at the moment, but it’s grown exponentially since 2009 when Credit Suisse and Deutsche Bank were trying to make the market.

The massive shift in iron ore pricing sent ripples through steel. In Europe, mills were up in arms about taking prices set by the world’s largest consumer, which has its own vagaries. “Sprecklehausen” became part of my dictionary – the surcharge used to pass-off fluctuations in raw material prices. Floating-prices became part of the industry, not just the old fixed pricing model. We hear of steel buyers such as OEMs hedging their exposure through iron ore swaps. This is akin to an airline hedging jetfuel buys with crude ore derivatives.

It has been, and continues to be, a real pleasure being part of the market – or at least on its periphery. There’s just something about steel, isn’t there?

]]>http://blogs.platts.com/2015/07/29/allure-steel/feed/0As Rosneft turns to Asia, will spot crude oil sales in the East decline further?http://blogs.platts.com/2015/07/28/rosneft-asia-spot-crude-oil-sales/
http://blogs.platts.com/2015/07/28/rosneft-asia-spot-crude-oil-sales/#commentsTue, 28 Jul 2015 04:01:14 +0000http://blogs.platts.com/?p=21007Russian giant Rosneft’s recent deals in Asia suggest it is potentially shifting the balance of its crude oil sales in the region — one of its most important export markets — from a spot tender basis to long term contracts and significantly reducing the amount of Russian crude that enters the spot market in Asia.

Last year the company sent 35% of its total crude exports, or around 680,000 b/d, to Asia, with South Korea, Japan and China being the main buyers.

Russia’s crude exports to Asia have been rising steadily, underpinned by term contracts sealed with Chinese buyers, primarily China National Petroleum Corp. By 2018, Rosneft will raise its term sales to CNPC to over 600,000 b/d, doubling from current volumes.

But Russia is already sending far more crude to China.

Data from Beijing shows that Russia for the first time overtook Saudi Arabia to be China’s top crude oil supplier in May, with volumes exceeding 900,000 b/d. Russian flows again surpassed 900,000 b/d in June, although Saudi Arabia reclaimed the top spot.

But Rosneft is intent on marketing even more to Asia, with chief Igor Sechin saying last month that he wanted 40% of its crude sales to go to the region by 2019. It is now looking to pin down buyers through term deals.

Rosneft most recently agreed to supply India’s Essar with 100 million mt over a 10-year period. This equates to 10 million mt/year, or 200,000 b/d, of crude. Before this, it also signed a deal with China’s state-owned chemicals producer ChemChina to provide 200,000 mt a month, or around 50,000 b/d, for one year. Last year it had already agreed to sell Sinopec 200,000 b/d for 10 years.

The barrels set to be provided by Rosneft in these term deals are likely to be from its crude exported from Eastern Russia, which consist largely of the ESPO and Sokol grades loaded from Kozmino and DeKastri, respectively.

Currently part of Rosneft’s sales of these two grades are done in spot tenders, which are posted on its website. However, term deals provide a stable outlet, particularly for ESPO, where production and exports have been rising steadily in recent years. Rosneft’s current allocations in the monthly loading program for ESPO from Kozmino stand at around seven cargoes of 100,000 mt or 165,000 b/d.

However, what ends up directly sold by Rosneft is a reduced number following its deal with trader Trafigura earlier this year which gave the latter the ability to sell two to three stems of ESPO produced by Rosneft each month.

This leaves Rosneft around two to three remaining stems of the Siberian crude grade to offer in spot tenders.

Most recently Rosneft offered two September loading stems of ESPO totaling 200,000 mt, equating to close to 50,000 b/d. It also offered three 95,000 mt cargoes of Sokol for September loading, amounting to about 65,000 b/d. Once the new term deals with ChemChina and Essar take effect, the question then is if these spot tenders will continue to be seen by the market in the months ahead.

One possible scenario is that ESPO production and exports will continue to rise, which should cover the increasing volumes going to term deals, as well as leaving some for monthly spot tenders.

Another alternative is that Rosneft could divert current exports of crude which go into Urals blend — sold mainly to western end-users — into the ESPO stream, further cementing its pivot to Asia.

]]>http://blogs.platts.com/2015/07/28/rosneft-asia-spot-crude-oil-sales/feed/0Major US oil trend left out of discussion of Iran dealhttp://blogs.platts.com/2015/07/27/us-oil-trend-discussion-iran-deal/
http://blogs.platts.com/2015/07/27/us-oil-trend-discussion-iran-deal/#commentsMon, 27 Jul 2015 18:58:11 +0000http://blogs.platts.com/?p=21035Secretary of State John Kerry held a question-and-answer session to a packed house Friday in New York at the Council on Foreign Relations to talk about the recently-concluded nuclear deal between Iran and several Western nations, including the US. It didn’t matter that the breakfast was called on about 24 hours notice on a Friday in the summer; it was a true VIP audience. (For example, among those in attendance: Hess Oil CEO John Hess.)

John Kingston, president of the McGraw Hill Financial Institute and a long-time Platts editorial leader, was in attendance. And as he noted, there was one word that, amazingly, didn’t emanate from Secretary Kerry’s mouth, not even once. You can find out what that word was on the Institute’s blog here.

]]>http://blogs.platts.com/2015/07/27/us-oil-trend-discussion-iran-deal/feed/0Trying to find what works for US steelmakers and employeeshttp://blogs.platts.com/2015/07/27/what-works-us-steelmakers-employees/
http://blogs.platts.com/2015/07/27/what-works-us-steelmakers-employees/#commentsMon, 27 Jul 2015 11:01:38 +0000http://blogs.platts.com/?p=21010Negotiating a union labor contract is often a slog. It gets more complicated if it’s a multi-year deal, and a bit treacherous if it’s a highly cyclical business.

All three apply to the steel industry, where major producers are in contract negotiations with the United Steelworkers union for long-term deals to replace current ones, which expire September 1. Throw in weak steel demand and high import penetration and it gets even stickier.

Bad times like these put unions at a disadvantage. Mills can legitimately cite market pressures and red ink in arguments for worker concessions. When the market is strong and mill profits are healthy, the steel-toed shoe is on the other foot and the union can reasonably demand its slice of the pie.

Entering the negotiation season, it may be instructive to view the strategy of ArcelorMittal USA, whose CEO has written a number of blogs about the costs of steelmaking, efficiency improvements, collapsed steel prices and import competition.

ArcelorMittal USA recently kicked off talks with the USW, which promptly reported that one of America’s largest steelmakers — if not the largest — is proposing a three-year contract that includes no wage increases and reductions in incentive pay and benefits.

Platts Steel Markets Daily is a leading source for scrap metal prices and iron ore news and prices. It is the only publication that publishes global metallurgical coal spot prices on a daily basis and contains two iron ore price benchmark assessments in one report: Platts IODEX and TSI 62% iron ore.

The USW said ArcelorMittal USA “cherry-picked parts of other USW contracts from a variety of industries” to form the basis of a pact that also includes a two-tier system of compensation and benefits wherein new hires would receive less. The company also reserved the right to propose more concessions, a USW negotiations update issued last week reported.

ArcelorMittal USA put its own spin on the initial contact talks, saying it “aims to achieve parity with other USW-represented manufacturers in the United States.” The steelmaker noted that it proposes to “close the labor cost gap” with its competitors without reducing wages, “which are among the highest in the industry.”

An ArcelorMittal USA spokesperson said while the steelmaker doesn’t agree with the USW’s characterization of its proposals, it “will not provide further updates at this time on the specific issues being discussed” out of respect for bargaining confidentiality. The spokesperson said the company is committed to working with the USW to reach a fair agreement and said additional information could be gleaned from the Fact Book on the company’s website and recent blogs by ArcelorMittal USA CEO Andy Harshaw.

Harshaw’s blogs say a lot about where ArcelorMittal USA is coming from. He called for the optimization of steelmaking assets, particularly under-utilized hot-strip mills (HSM), the key equipment for making sheet steel, ArcelorMittal USA’s main product. “Why run five HSMs at 70% when you can finish the same tonnage running four HSMs at 90% capacity?” Harshaw proffered.

But when reports surfaced that the company could also rationalize its blast furnace operations and close part of a major mill, Harshaw quickly and adamantly denied it.

Perhaps chatter about more extensive rationalization is understandable given the laundry list of woes facing ArcelorMittal USA and many other American steelmakers. These items were included in Harshaw’s blogs:

The company’s average annual wages per USW employee was $97,946 in 2014, up from $82,473 in 2011.

Annual healthcare cost per active employee was $18,274 last year, up from $15,596 in 2011.

Global overcapacity has pushed US capacity utilization to around 70%, while sustained capacity utilization of around 80% is needed for profitability.

Imports of flat carbon steel, which account for 93% of ArcelorMittal USA’s business, are up 75% since 2013.

Domestic sheet steel pricing has declined by more than 30% since Q1 2014 for a total drop of $220/ton. “It’s simple math: that’s a loss in excess of $1 billion for 2015 – a loss that we cannot make up.”

ArcelorMittal’s US operations require more than $1 billion in repair and maintenance costs each year.

Harshaw said ArcelorMittal USA is working closely with the USW to identify ways to achieve higher mill utilization levels and reduce operating costs without giving up market share. “We need to be creative and find solutions to be sustainable,” he said.

The union negotiating committee is now reviewing ArcelorMittal’s proposals and is not likely happy, but given the circumstances, it may have little choice but to make at least some concessions. Still, the union said it is “committed to negotiating a fair agreement that does not include drastic reductions in compensation for active and retired employees.”

]]>http://blogs.platts.com/2015/07/27/what-works-us-steelmakers-employees/feed/2Tracking the rise of the refrac: New Frontiershttp://blogs.platts.com/2015/07/27/oil-refrac-new-frontiers/
http://blogs.platts.com/2015/07/27/oil-refrac-new-frontiers/#commentsMon, 27 Jul 2015 04:01:54 +0000http://blogs.platts.com/?p=21027How does one prompt more oil production in a time of lean budgets and low prices? In this week’s Oilgram News column, New Frontiers, Starr Spencer explains how some are trying to find success by revisiting horizontal wells.

If at first you don’t produce, frac, frac again. While hundreds of North American wells remain unfinished due to low oil prices, some operators are embracing technology to refracture horizontal wells in an attempt to eke out more production at a fraction of the cost.

For years, consultants and some oil companies had claimed that the technology, which has been used frequently on vertical wells, wasn’t quite ready to be deployed horizontally.

That may be changing. The drive to tap a potentially vast market for hydraulic refractures of wells — popularly called “refracs” — is getting a shot in the arm as oilfield service companies tout new technology and create what may be the next big industry trend during the current downturn.

“Hundreds of refracs are planned in the US for this year alone,” said Tim Leshchyshyn, president of FracKnowledge, which is building what he said will be industry’s only refrac database.

Although refracs have been performed on thousands of vertical wells for decades to coax more oil and gas bypassed in original completions, they have been less prominent on horizontal wells. Just a few hundred refracs have been tried on horizontals, sources say.

Many industry watchers were skeptical that refracturing technology was developed enough for wide-scale application on horizontal wells, which have gained momentum in the shale revolution since the early 2000s. But new technologies that can better pinpoint the areas of left-behind oil and gas from the original fracturing are being rapidly developed and oil service companies are betting big money on it, analysts say.

“There’s definitely been some advancements … that change how operators are assessing wells,” Colleen Kennedy, research analyst for E&P technology at market analyst Lux Research, said.

For example, in recent weeks, Halliburton released a new reservoir evaluation tool, while Baker Hughes, the third-largest oil services company soon to merge with Halliburton, has debuted a well integrity evaluation tool, Kennedy said.

With oil prices having retreated from the $60/barrel level to sub-$50/b this month and fewer wells being drilled due to slimmed-down upstream budgets, these technologies allow service providers to better analyze wells and original fracs with an eye to coaxing more oil and gas from them via refracs, and how and where to do it, Kennedy said.

For example, microseismic analysis and state-of-the-art tracers to monitor where proppants are directed can be applied to refracs, she said. Rock quality varies between basins and requires different approaches. Proppants are typically sand or ceramic to hold fracs open and allow greater hydrocarbon flows.

Since often 10% or less of a well’s hydrocarbons are captured the first time around, many in industry look to refracs as a relatively inexpensive way to hike output — particularly at a time of lower oil prices, since refracs typically run around 25-30% of the original well’s $6-$8 million price tag.

In the last 10 days, the two largest oilfield service providers indicated they were preparing for a wave of refracs.

Schlumberger, the world’s largest service company, has eight North American refracturing jobs in progress and is offering to assume more geological risk for customers in return for greater rewards based on incremental production. Meanwhile, Halliburton, second in size globally, said asset manager BlackRock would pour $500 million into a joint venture with the service company over three years to fund E&P companies’ refracs.

The key understanding in refracs is where a reservoir has been depleted and where current production comes from, said H.C. Freitag, Baker Hughes’ vice president of integrated technology.

Freitag claims that in some cases, Baker Hughes’ refractured or restimulated wells have debuted at multiple times the amount of the original initial production. Of course, well output still declines after that, and ultimate volumes cannot be known until they actually are produced. In any case, “we want to be definitely higher than [the original initial production], if not considerably higher,” added Freitag.

No one knows for sure how much refracs could hike North American production in the next few years, or just how large the market could be.

“The adoption rate among operators is too low now, and the distribution of outcomes from wells that have been restimulated in the field is too high,” Robert Clarke, research director for global unconventional oil and gas at consultants Wood Mackenzie, said.

Moreover, “the error bands around an assumption for the number of good candidate wells are too wide,” Clarke said. “Is it 1%, 5%, 10%, or 20% of mature producers? We just can’t say yet. That number, though, will determine how much incremental production operators can deliver.” — Starr Spencer

]]>http://blogs.platts.com/2015/07/27/oil-refrac-new-frontiers/feed/0How did the SPR become so popular on Capitol Hill? The illusion of a piggy bankhttp://blogs.platts.com/2015/07/24/spr-popular-capitol-hill-piggy-bank/
http://blogs.platts.com/2015/07/24/spr-popular-capitol-hill-piggy-bank/#commentsFri, 24 Jul 2015 04:01:44 +0000http://blogs.platts.com/?p=20990About 700 million barrels of crude oil stored in four sites along the US Gulf coast seems to have recently inspired the imagination of a cash-strapped Congress.

With US crude production nearing record highs and prices falling below $50/b, federal lawmakers are pushing to sell millions of barrels from the US Strategic Petroleum Reserve to fund bills with little, or nothing, to do with energy.

First Representative Fred Upton, a Michigan Republican and chairman of the House Energy and Natural Resources Committee, included a plan to sell 64 million barrels from the SPR over eight years to fund his health care bill, the 21st Century Cures Act.

Then on July 21, senators included a proposal to sell 101 million barrels of crude from the SPR to at least partially fund a six-year highway bill.

The proposals are expected to raise roughly $5.4 billion and $9 billion, respectively, estimates which assume that crude oil will average $84/b and $89/b, respectively, and ignore the costs of purchasing the crude in the first place.

At the same time, the proposed sales face opposition from the Obama administration and congressional Republicans.

US Energy Secretary Ernest Moniz has said he is against selling the government’s crude reserves for anything other than energy-security purposes and called these planned sales a “slippery slope” to additional sales not in line with the SPR’s purpose.

In a Senate floor speech on Tuesday, Senator Lisa Murkowski, an Alaska Republican and chairman of the Senate Energy and Natural Resources Committee, called an SPR sale to pay for unrelated legislation “shortsighted” and “the wrong approach.”

“If Congress is going to sell any oil from the SPR, we should agree that the proceeds should first be used to pay for upgrading the reserve itself. It needs significant modifications to preserve its long-term viability, and to ensure that it can actually dispense oil in the event of an emergency,” Murkowski said. “It would be a travesty to dramatically reduce the size of the SPR, while continuing to ignore its maintenance and operational needs.”

Murkowski has said the SPR should not be used as an “ATM” for lawmakers, a point stressed by Representative Charles Boustany Jr., a Louisiana Republican, who said SPR sales could impair his state’s most lucrative industry.

“Selling barrels from the [SPR] should be done in a thoughtful and strategic manner when global prices are high, not as another coffer for Congress to raid at its convenience and at the expense of Louisiana’s oil and gas industry,” he said.

According to Kevin Book, managing director of ClearView Energy Partners, the Obama administration could support a sale in exchange for a $2 billion appropriation to “modernize” the SPR, a priority outlined by the DOE. (Book also talked to Capitol Crude about the SPR in June; listen to the episode here.)

Since the first barrels of oil were delivered to the SPR in 1977, its size has always been based on an international agreement to stockpile the equivalent of 90 days of crude imports.

As of July 17, the SPR held 695.1 million barrels, including 266.1 million barrels of sweet crude and 429 barrels of sour crude, according to the DOE. Book said this means the SPR could hold between 250 million and 330 million in surplus, but said he would be surprised if more than 50% of that surplus would be sold, due to resistance from the White House, Murkowski and others.

A sweeping energy bill due to be unveiled this week by Senators Murkowski and Maria Cantwell, a Washington Democrat and the committee’s ranking member, is expected to include limits on SPR sales, keeping them from funding anything but the stockpile’s maintenance and national security efforts.

We’ll have to wait and see if this ends the recent popularity of the SPR as a funding mechanism.

]]>http://blogs.platts.com/2015/07/24/spr-popular-capitol-hill-piggy-bank/feed/1Nickel imports in China nab a massive increasehttp://blogs.platts.com/2015/07/23/nickel-imports-china-nab-massive-increase/
http://blogs.platts.com/2015/07/23/nickel-imports-china-nab-massive-increase/#commentsThu, 23 Jul 2015 04:01:23 +0000http://blogs.platts.com/?p=20997China’s imports of refined nickel increased by a staggering 250% in June to 38,545 mt compared to 11,014 mt in June 2014. Quarter on quarter, China’s refined nickel imports increased by 236% in Q2 to 79,911 mt from 23,813 mt in Q1 2015. If this upward trend continues, China could import over 207,000 mt of refined nickel this year — a potential increase of 60% on last year’s total of 129,980 mt.

Certainly, the Indonesian nickel ore ban, which has been in place since January 2014, has had an impact on Chinese nickel demand. Since January of this year, China has not imported any ore or concentrate from Indonesia, having previously imported 10.6 million mt in 2014 and 41.1 million mt in 2013. This has China looking elsewhere for its nickel ore and concentrate and also needing to diversify the type of nickel it looks to import.

Some of the Indonesian shortfall has been replaced by nickel ore and concentrate from the Philippines. China imported 14 million mt of Filipino ore and concentrate in the first half of this year, up 15% from 12.3 million mt in the first half of 2014, and up by 30% from 10.9 million mt imported in the first half of 2013.

However, overall despite the increase in Filipino imports, China’s total ore and concentrate imports are down 37% in the first half of 2015 at 14.4 million mt from 23.08 million mt in the first six months of 2014.

China has looked to fill some of this gap by supplementing the lack of nickel ore and concentrate with ferronickel imports. Ferronickel imports to China were up by 129% in the first half of 2015 at 321,149 mt from 140,115 mt in the first half of 2014, and were up by 368% from 68,656 mt in the first half of 2013.

So in some respects, China’s appetite for refined nickel can be seen in the broader context of it looking to supplement the fall in Chinese nickel ore and concentrate imports. However, refined nickel imports are also likely to have been boosted by the launch of the Shanghai Futures Exchange nickel contract in March this year. The market has been speculating that participants have been shipping Russian material to China, and Norilsk Nickel confirmed at the beginning of this month that it had registered three brands for delivery against the SHFE nickel contract — the first foreign company among global nickel producers to do so. Russian exports of refined nickel to China were up 32% in June at 21,668 mt from 16,385 mt in May. This represents 56% of China’s refined metal imports in June.

With China looking to diversify its nickel imports and Norilsk Nickel registering on the SHFE, China may well continue to increase refined nickel imports over the rest of 2015. And with nickel prices currently trading near historical lows, this could be a potential buying opportunity for those looking to speculate on the longer-term fundamentals of the market.

Analysts have been forecasting a nickel market deficit in the second half of 2015, and although LME nickel stocks remain high and will need to be drawdown before prices are likely to see a sustained increase (as we explain here), the increase in refined nickel imports to China could offer some fundamental support to the market.